Shakarganj Food Products Limited

Transcription

1 Rating Report RATING REPORT Shakarganj Food Products Limited REPORT DATE: March 22, 2018 RATING ANALYSTS: Maimoon Rasheed M. Daniyal RATING DETAILS Rating Category Latest Rating Long-term Short-term Entity A- A-2 Rating Outlook Stable Rating Date 20 March 18 Sukuk (preliminary) A Rating Outlook Rating Date Stable 20 March 18 COMPANY INFORMATION Incorporated in 2001 Public Limited Unlisted Company Key Shareholders (with stake 5% or more): Shakarganj Limited- 49.2% Bank Islami Pakistan Limited- 40.2% Crescent Steel and Allied Products Limited - 7.9% External auditors: EY Ford Rhodes, Chartered Accountants Chairman of the Board: Mr. Anjum M. Saleem Chief Executive Officer: Mr. Anjum M. Saleem APPLICABLE METHODOLOGY(IES) JCR-VIS Entity Rating Criteria: Industrial Corporates (October 2016)

2 Rating Report Shakarganj Food Products Limited OVERVIEW OF THE INSTITUTION Shakarganj Food Products Limited is an unlisted public limited company setup by initially acquiring a fruit juice concentrate plant from A.M. Fruits in 2005 and later acquiring a dairy facility from Dairy Crest Limited in 2006.Principal activity of SFPL involves manufacturing, processing and sale of food products including dairy, fruit pulps, and concentrate juices. Profile of Chairman/CEO: Mr. Anjum A. Saleem is the Chairman/CEO of SPFL and carries over 30 years of international and local diverse corporate management experience. Mr. Anjum holds a Chartered Accountant qualification from ICAEW (Institute of Chartered Accountants, England & Wales) and also serves as CEO of Shakarganj Limited. Financial Snapshot: Net Profit: 1QFY18: Rs m; FY17: Rs m; FY16: Rs m Net Equity: 1QFY18: Rs. 2.1b; FY17: Rs. 2.0b; FY16: Rs. 1.7b RATING RATIONALE The ratings assigned to Shakarganj Food Products Limited (SFPL) take into account company s sustained business growth, sound liquidity profile and adequate debt coverages. Ratings also derive strength from strong sponsor profile of the company comprising renowned business concerns including Sharkarganj Limited (SML), Bank- Islami Pakistan Limited (BIPL) and Crescent Steel and Allied Products Limited (CSAP). Business risk profile of the company is considered moderate on account of increasingly competitive operating environment leading to pressure on margins. Moreover, industry margins remain sensitive to regulatory changes in taxes and duties. Product Portfolio and Market Share SFPL primarily operates two business divisions; dairy and juice, with former comprising more than 95% of gross sales. Product portfolio of the company include plain and flavored UHT milk, tea whiteners, UHT cream, desi ghee, fruit concentrates and juices. Within tea whitener segment, SFPL is the market leader with about 32% share while the share of its UHT milk brand Good Milk stood low at 5.5% in FY17. Asset Mix By end-1qfy18, total assets of the company increased to Rs. 5.1b (FY17: 4.9b; FY16: 4.6b; FY15: Rs. 3.5b); fixed assets comprise around half of total asset base, while inventory accounts for one-fifth of the same. Going forward, asset base is expected to enhance further primarily on account of planned capex pertaining to capacity expansion related to dairy plant. Profitability Over the last three years, net sales of the company have grown at a CAGR of 22% mainly on account of consistently higher volumetric sales, while some increase in prices has also contributed to a certain extent. Concentration in sales is, however, evident as top 10 distributors contribute around one-fifth of gross sales. During FY17, net sales amounted to Rs. 12.4b (FY16: Rs. 10.1b; FY15: Rs. 8.4b); gross margin declined on account of imposition of sales tax and custom duties on raw material, thereby leading to higher cost of sales. Given some increase in salaries and freight cost, operating expenses stood higher while finance cost increased due to relatively higher average borrowings. Accounting for taxation, net income stood lower at Rs m (FY16: Rs m; FY15: Rs m) during FY17; the same amounted to Rs m during 1QFY18. Liquidity & Cash Flows Liquidity profile of the company is considered adequate on account of sufficient cash flows in relation to outstanding debt and effective cash cycle. During FY17, Funds from Operations (FFO) decreased primarily on account of lower bottom line leading to lower FFO-to-total debt of 0.46x (FY16: 0.50x; FY15: 1.21x); the same amounted to 0.47 during 1QFY18. Funding & Capitalization By end-fy17, total equity of the company augmented to Rs. 2.0b (FY16: Rs. 1.7b; FY15: Rs. 1.2b) on account of profit retention. By end-1qfy18, total borrowings amounted to Rs m (FY17: 988.3m, FY16: Rs. 1.1b; FY15: Rs m); borrowings comprise both short-term and long-term debt. On account of increase in equity by virtue of profit retention and periodic repayment of long-term debt, gearing and leverage improved to 0.43 (FY17: 0.49x; FY16: Rs. 0.63x; FY15: 0.59x) and 1.40x (FY17:1.43x; FY16: 1.65x; FY15: 1.96x) by end-1qfy18. Recently, the board of directors has approved a right share issue of Rs. 700m during the ongoing year, in order to rationalize its capital structure. Prospective Sukuk Issue SFPL has mandated BIPL as its lead advisor & arranger for issuance of privately placed and secured, diminishing musharakah Sukuk of amount upto Rs. 1.0b (inclusive of a Rs. 300m green shoe option). Tenor of the Sukuk will be 6 years including 1-year grace period. Principal will be repaid in 20 quarterly installments starting from 15 th month from the date of Issuance. Moreover, the company will maintain a Debt Service Account (DSA) with accounts bank, which will be held under exclusive lien of investment agent/trustee (for the benefit of the sukuk investors). The company shall ensure that during each month (and in any case not later than the fifteenth (15 th ) day of each month), it shall deposit the amount equivalent to the 1/3 rd of the upcoming installment amount (principal + profit/rental) into DSA so that the aggregate amount in the DSA on the due date is equal to the installment amount of the relevant period due for payment.

3 Shakarganj Food Products Limited- Appendix I FINANCIAL SUMMARY(amounts in PKR millions) BALANCE SHEET FY15 FY16 FY17 1QFY18 Fixed Assets 1, , , ,650.1 Stock-in-Trade Trade Debts Sales Tax Recoverable Other Assets Cash & Bank Balances Total Assets 3, , , ,053.6 Trade and Other Payables 1, , , ,632.5 Long Term Debt (including current maturity) Short-term Debt Other Liabilities Total Liabilities 2, , , ,948.1 Total Equity 1, , , ,105.5 INCOME STATEMENT FY15 FY16 FY17 1QFY18 Net Sales 8, , , ,879.5 Gross Profit 1, , , Profit before Tax Profit After Tax RATIO ANALYSIS FY15 FY16 FY17 1QFY18 Gross Margin (%) Net Margin (%) FFO FFO to Total Debt FFO to Long-term Debt Debt Leverage Gearing DSCR ROAE (%)

4 ISSUE/ISSUER RATING SCALE & DEFINITIONS Appendix II

5 REGULATORY DISCLOSURES Appendix III Name of Rated Entity Shakarganj Food Products Limited Sector Consumer Goods Type of Relationship Solicited Purpose of Rating Entity Ratings Rating History Rating Date Medium to Long Term Short Term Rating Outlook Rating Action RATING TYPE: ENTITY Mar 20, 18 A- A-2 Stable Initial RATING: SUKUK Mar 20, 18 A Stable Preliminary Instrument Structure Proposed Sukuk is of amount Rs. 1.0b (inclusive of 300m green shoe option). Tenor of the Sukuk will be 6 years including 1-year grace period. Principal will be repaid in 20 quarterly installments starting from 15 th month from the date of issuance. Statement by the Rating Team Probability of Default Disclaimer The facility shall be secured by first pari passu charge over moveable & immoveable fixed assets of the company with 25% margin plus any other security mutually agreed or as advised by the legal counsel. Moreover, the company will maintain a Debt Service Account (DSA) with accounts bank, which will be held under exclusive lien of investment agent/trustee (for the benefit of the sukuk investors). The company shall ensure that during each month (and in any case not later than the fifteenth (15 th ) day of each month), it shall deposit the amount equivalent to the 1/3 rd of the upcoming installment amount (principal + profit/rental) into DSA so that the aggregate amount in the DSA on the due date is equal to the installment amount of the relevant period due for payment. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the credit rating(s) mentioned herein. This rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. JCR-VIS ratings opinions express ordinal ranking of risk, from strongest to weakest, within a universe of credit risk. Ratings are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or particular debt issue will default. Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR- VIS is not an NRSRO and its ratings are not NRSRO credit ratings. Copyright 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.